Senators Take Aim Against Ad Fraud, Ask FTC for Answers

Warner and Schumer Look for Solutions

Two U.S. senators sent an open letter to Federal Trade Commission Chairwoman Edith Ramirez on Monday, inquiring about the current state of ad fraud.

The letter, sent by Senators Mark Warner (D-Va.) and Charles Schumer (D-N.Y.), says the landscape of advertising has changed, adding that ad fraud creates a negative economic impact on both consumers and advertisers.

"Much like a stock, the value of an ad impression is highly contingent on measured demand," the letter says. "However, the problem with relying on ad clicks or views to measure that value is that recent studies have shown this data is frequently inaccurate."

Mr. Warner also posted on Twitter to call attention to the subject:

Here's an amazing fact: by 2025, the digital ad market could be 2nd only to drug trafficking as largest revenue source for organized crime

The rapid growth of programmatic ad buying and selling has dramatically ballooned the estimates for ad fraud since 2010. "It is much more expensive to get a page view from a human," Adam Epstein, COO of AdMarketplace, previously told Ad Age. "So, there is an incentive from the network to give you a pageview from a bot."

The letter points to nonhuman traffic, or bots, as the driving force behind ad fraud. "Fraud thrives when advertisers measure the wrong events like page views, video views -- those are events that both a human and a bot can do," Mr. Epstein said.

According to the Interactive Advertising Bureau, digital advertising revenue surged to a record-breaking $59.6 billion in 2015. At the same time, some $7.2 billion is expected to be siphoned from marketers in 2016, up nearly $1 billion, due to ad fraud.

The senators point to malvertising as one of the primary reasons why so many consumers have adopted ad blockers, referring to the tactic in which ads are enlisted to infect people's computers with malware. Fraudsters often target top-tier websites to deploy malvertising and in many cases, a user doesn't even have to click an ad to have his or her computer infected.

The letter concludes by asking the senators several questions:

Is the FTC observing a trend that favors one particular type of advertising fraud over another? If so, what factors are leading to the prevalence of that particular type of fraud?

What is the projected economic impact of this degree of data and revenue leakage amongst media owners and publishers?

What steps is the FTC taking to protect consumer data and mitigate fraud within the digital advertising industry? What regulatory agency currently provides oversight of mobile advertising platforms?

What steps can be taken to reform opaque advertising exchanges?

What can be done more closely align the incentives of ad tech companies with publishers, advertisers and consumers?

To the extent that criminal organizations are involved in perpetuating digital advertising fraud, how is the FTC coordinating with both law enforcement (the Department of Homeland Security or FBI) and the private sector to formulate an appropriate response?